STC SERIES 66 FINAL #1 AND 2 EXAM
QUESTIONS AND CORRECT ANSWERS.
VERIFIED 2025/2026.
A client purchases an equity-indexed annuity contract that guarantees a 4% return or 80% of the
performance of the S&P 500, whichever is greater. The index declines over the course of the
next year. What return will your client receive? - ANS 4%
An equity-indexed annuity guarantees the contract owner a minimum interest rate or the
performance of a stock index such as the S&P 500 Index. If the return on this index is less than
the guaranteed rate, the owner receives the guaranteed rate. If the index return is greater than
the guarantee, the owner receives the greater return. (62437)
The investment policy statement of a qualified retirement plan states that no more than 50% of
the plan's assets may be invested in stocks. The investment manager places 65% of the plan's
assets in stocks in order to take advantage of a bull market and increase the value of the plan's
assets. Has the investment manager violated the fiduciary responsibility provisions of ERISA? -
ANS Yes, since the investment manager did not follow the stipulations of the investment
policy statement
This is an actual court case. The plan's trustees sued the investment manager who was held
liable even though the plan's assets increased. (62146)
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
,All of the following choices are required to be included in a trade blotter, EXCEPT: - ANS The
amount of interest or dividends the investor will receive
Broker-dealers and investment advisers are required to keep certain books and records. One of
them is a blotter, which is a daily record of all purchases and sales of securities. The trade
blotters contain information concerning the transaction such as the account in which the trade
was executed, the trade date, the unit value and total value of the transaction, the name and
amount of securities, and whom the securities were bought from or sold to. Blotters are also
required when a firm receives or delivers securities as well as receives or disburses cash.
Under the Uniform Securities Act, the statute of limitations for criminal violations of the Act is: -
ANS Five years
The statute of limitations for criminal violations under the Act is five years. (62943)
A small, single-office investment advisory firm has $4 million in assets under management. The
firm is located in Texas. According to the Uniform Securities Act, which of the following persons
associated with the firm will NOT fall under the definition of an investment adviser
representative? - ANS An in-house accountant who tabulates investment results for client
accounts
IA representatives are persons who are associated with an IA and make recommendations,
manage accounts, solicit or negotiate the sale of IA services, or supervise any persons who
engage in these activities. Persons who perform clerical functions (e.g., accountants) are not
considered IA representatives. There is no requirement for a person to be an employee or to be
solely dedicated to sales to meet the definition of IA representative.
Under the Securities Exchange Act, a customer confirmation is NOT required to disclose: -
ANS The time of the trade execution
The Securities Exchange Act requires broker-dealers to make specific disclosures on customer
confirmations. Some of the required information includes the capacity in which the broker-
dealer is acting (i.e., agency or principal), the amount of commission received by the broker-
dealer for executing an agency trade, and the settlement date of the trade. The time of the
trade execution is not required to be disclosed on a customer confirmation; however, it may be
provided if the customer makes a specific request.
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
,Under the Uniform Securities Act, an Administrator may deny registration to an agent because
of findings that indicate the agent had been convicted of a felony within the past: - ANS 10
years
The Administrator may deny an agent's registration if she finds the individual has been
convicted of a felony within the past 10 years. (62109)
NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment
Adviser Representatives, and Federal Covered Advisers states that any fee arrangement based
on capital gains or portfolio appreciation may only be used if which of the following disclosures
is made in writing? - ANS That the arrangement may cause the adviser to recommend
strategies that encourage a client to take greater-than-normal risks
As opposed to other fee arrangements, performance-based fees are more likely to encourage an
adviser to take greater risks with a client's money in order to generate more fees. While
performance-based fees are generally prohibited under the Uniform Securities Act, some state
Administrators make exceptions. (67684)
Susan is a high-ranking official in the Comptroller's Office of Zanzibar Securities. Her title is
Executive Vice President. Under the Uniform Securities Act, Susan is: - ANS Not considered an
agent since she is not involved in sales or trading
Only personnel engaged in securities transactions are agents. Officers can be considered agents,
but it depends on their particular job function. (79474)
Which of the following securities is NOT considered exempt under the Uniform Securities Act? -
ANS Securities issued by an automobile company
Under the Uniform Securities Act, any security issued by Canada or a Canadian Province, or
savings and loan association, or any railroad company is considered an exempt security. There is
an exemption under the Act for common carriers but an automobile company does not qualify
for this exemption. (
Value investors would be interested in companies that have - ANS Low price earnings ratios
3 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, Value investing is a method of identifying securities that are undervalued based on company
fundamentals. Value stocks tend to have low stock prices in relationship to their earnings, a
higher dividend yield than their industry peers, and, typically, trade at a price closer to or at a
discount to the book value than their competitors. Value investors believe that the most
undervalued companies should rebound and outperform the market. This, of course, assumes
that the company is financially sound. (63012)
As an investment adviser, you are required to record and keep a record of every transaction in a
security for a client's account within: - ANS 10 days of the end of each quarter, excluding
direct obligations of the U.S. government
Under both the Investment Advisers Act and the Uniform Securities Act, investment advisers are
required to keep a record of every securities transaction within 10 days of the end of the
quarter in which the transaction took place. Transactions in direct obligations of the U.S.
government are excluded from this requirement.
What is the benefit of discounting the cash flows of a fixed-income security? - ANS It
compares the price of a bond against the sum of the present values of the bond's future
payouts
A discounted cash flow evaluates each coupon payment and the repayment of a bond's
principal at a present value, based on a rate of return. This makes it possible to evaluate a
bond's value against the investor's desired rate of return. The sum of each of the discounted
cash flows, plus the present value of the bond's principal, determines the total value of the
bond. By comparing this value to the current price of the bond, the adviser will be able to
determine if the bond is an attractive investment for a client.
Based on the past performance of XYZ stock, an investment adviser has determined that there is
a 25% chance that in a bull market, XYZ stock will return 20%. In a flat market (50% probability),
the return should be 5%. The likelihood of a bear market is 25%, and expected returns would be
a loss of 10%. What is the expected return for XYZ stock? - ANS 5%
According to modern portfolio theory, the expected return is the sum of the weighted average
of an investment's return. To find each weighted return, multiply the return by the likelihood of
that return. For XYZ stock, the expected return is as follows.
4 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
QUESTIONS AND CORRECT ANSWERS.
VERIFIED 2025/2026.
A client purchases an equity-indexed annuity contract that guarantees a 4% return or 80% of the
performance of the S&P 500, whichever is greater. The index declines over the course of the
next year. What return will your client receive? - ANS 4%
An equity-indexed annuity guarantees the contract owner a minimum interest rate or the
performance of a stock index such as the S&P 500 Index. If the return on this index is less than
the guaranteed rate, the owner receives the guaranteed rate. If the index return is greater than
the guarantee, the owner receives the greater return. (62437)
The investment policy statement of a qualified retirement plan states that no more than 50% of
the plan's assets may be invested in stocks. The investment manager places 65% of the plan's
assets in stocks in order to take advantage of a bull market and increase the value of the plan's
assets. Has the investment manager violated the fiduciary responsibility provisions of ERISA? -
ANS Yes, since the investment manager did not follow the stipulations of the investment
policy statement
This is an actual court case. The plan's trustees sued the investment manager who was held
liable even though the plan's assets increased. (62146)
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
,All of the following choices are required to be included in a trade blotter, EXCEPT: - ANS The
amount of interest or dividends the investor will receive
Broker-dealers and investment advisers are required to keep certain books and records. One of
them is a blotter, which is a daily record of all purchases and sales of securities. The trade
blotters contain information concerning the transaction such as the account in which the trade
was executed, the trade date, the unit value and total value of the transaction, the name and
amount of securities, and whom the securities were bought from or sold to. Blotters are also
required when a firm receives or delivers securities as well as receives or disburses cash.
Under the Uniform Securities Act, the statute of limitations for criminal violations of the Act is: -
ANS Five years
The statute of limitations for criminal violations under the Act is five years. (62943)
A small, single-office investment advisory firm has $4 million in assets under management. The
firm is located in Texas. According to the Uniform Securities Act, which of the following persons
associated with the firm will NOT fall under the definition of an investment adviser
representative? - ANS An in-house accountant who tabulates investment results for client
accounts
IA representatives are persons who are associated with an IA and make recommendations,
manage accounts, solicit or negotiate the sale of IA services, or supervise any persons who
engage in these activities. Persons who perform clerical functions (e.g., accountants) are not
considered IA representatives. There is no requirement for a person to be an employee or to be
solely dedicated to sales to meet the definition of IA representative.
Under the Securities Exchange Act, a customer confirmation is NOT required to disclose: -
ANS The time of the trade execution
The Securities Exchange Act requires broker-dealers to make specific disclosures on customer
confirmations. Some of the required information includes the capacity in which the broker-
dealer is acting (i.e., agency or principal), the amount of commission received by the broker-
dealer for executing an agency trade, and the settlement date of the trade. The time of the
trade execution is not required to be disclosed on a customer confirmation; however, it may be
provided if the customer makes a specific request.
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
,Under the Uniform Securities Act, an Administrator may deny registration to an agent because
of findings that indicate the agent had been convicted of a felony within the past: - ANS 10
years
The Administrator may deny an agent's registration if she finds the individual has been
convicted of a felony within the past 10 years. (62109)
NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment
Adviser Representatives, and Federal Covered Advisers states that any fee arrangement based
on capital gains or portfolio appreciation may only be used if which of the following disclosures
is made in writing? - ANS That the arrangement may cause the adviser to recommend
strategies that encourage a client to take greater-than-normal risks
As opposed to other fee arrangements, performance-based fees are more likely to encourage an
adviser to take greater risks with a client's money in order to generate more fees. While
performance-based fees are generally prohibited under the Uniform Securities Act, some state
Administrators make exceptions. (67684)
Susan is a high-ranking official in the Comptroller's Office of Zanzibar Securities. Her title is
Executive Vice President. Under the Uniform Securities Act, Susan is: - ANS Not considered an
agent since she is not involved in sales or trading
Only personnel engaged in securities transactions are agents. Officers can be considered agents,
but it depends on their particular job function. (79474)
Which of the following securities is NOT considered exempt under the Uniform Securities Act? -
ANS Securities issued by an automobile company
Under the Uniform Securities Act, any security issued by Canada or a Canadian Province, or
savings and loan association, or any railroad company is considered an exempt security. There is
an exemption under the Act for common carriers but an automobile company does not qualify
for this exemption. (
Value investors would be interested in companies that have - ANS Low price earnings ratios
3 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, Value investing is a method of identifying securities that are undervalued based on company
fundamentals. Value stocks tend to have low stock prices in relationship to their earnings, a
higher dividend yield than their industry peers, and, typically, trade at a price closer to or at a
discount to the book value than their competitors. Value investors believe that the most
undervalued companies should rebound and outperform the market. This, of course, assumes
that the company is financially sound. (63012)
As an investment adviser, you are required to record and keep a record of every transaction in a
security for a client's account within: - ANS 10 days of the end of each quarter, excluding
direct obligations of the U.S. government
Under both the Investment Advisers Act and the Uniform Securities Act, investment advisers are
required to keep a record of every securities transaction within 10 days of the end of the
quarter in which the transaction took place. Transactions in direct obligations of the U.S.
government are excluded from this requirement.
What is the benefit of discounting the cash flows of a fixed-income security? - ANS It
compares the price of a bond against the sum of the present values of the bond's future
payouts
A discounted cash flow evaluates each coupon payment and the repayment of a bond's
principal at a present value, based on a rate of return. This makes it possible to evaluate a
bond's value against the investor's desired rate of return. The sum of each of the discounted
cash flows, plus the present value of the bond's principal, determines the total value of the
bond. By comparing this value to the current price of the bond, the adviser will be able to
determine if the bond is an attractive investment for a client.
Based on the past performance of XYZ stock, an investment adviser has determined that there is
a 25% chance that in a bull market, XYZ stock will return 20%. In a flat market (50% probability),
the return should be 5%. The likelihood of a bear market is 25%, and expected returns would be
a loss of 10%. What is the expected return for XYZ stock? - ANS 5%
According to modern portfolio theory, the expected return is the sum of the weighted average
of an investment's return. To find each weighted return, multiply the return by the likelihood of
that return. For XYZ stock, the expected return is as follows.
4 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
